2013年-世界发展银行全球_Mexico_MultiCat_Bond___Transferring_Catastrophe_Risk_to_the_Capital_Markets_2页_1023kb

Mexico MultiCat Bond Summary

Core Content

Mexico has been a pioneer in disaster risk management, particularly in the use of catastrophe bonds (Cat Bonds) to transfer natural disaster risk to the capital markets. The country's vulnerability to natural hazards such as hurricanes, earthquakes, floods, and volcanic eruptions led to the establishment of the Fund for Natural Disaster Risk (FONDEN) in 1996, which aims to manage disaster-related financial risks and ensure preparedness rather than reactive response.

In 2006, Mexico issued its first catastrophe bond, CatMex, to transfer earthquake risk to the international capital markets. This marked the first time a sovereign issued a parametric cat bond. Following the success of CatMex, Mexico further diversified its risk coverage by issuing the MultiCat 2009 bond, which was the first multi-peril, multi-region cat bond in the world, under the World Bank's MultiCat Program. The MultiCat 2012 bond was a successor with expanded coverage and more detailed risk structures.

Main Objectives

• Transfer disaster-related risks to the capital markets to reduce pressure on public budgets
• Ensure that adequate funds are available for disaster relief and reconstruction
• Cover multiple perils in different regions

Key Highlights

• Mexico is one of the most experienced emerging market countries in disaster risk management.
• It was the first country to issue a multi-peril, multi-region cat bond using the World Bank's MultiCat Program.
• The MultiCat Program enables efficient risk transfer by pooling multiple perils across multiple regions.
• The bond allows the government to secure multi-year protection at a fixed price, reducing fiscal volatility.

Structure and Description

• MultiCat 2009 was a four-tranche cat bond with a total notional value of US$290 million, issued under the MultiCat Program.
• The bond was issued by a Special Purpose Vehicle (SPV) and provided parametric insurance against earthquake risk in three regions around Mexico City and hurricane risk on the Atlantic and Pacific coasts.
• MultiCat 2012 was a three-tranche cat bond with a total notional value of US$315 million, covering five earthquake regions.
• Parametric triggers for both earthquakes and hurricanes were more tailored than in the 2009 transaction.
• The bond repayment depends on whether a natural disaster event triggers a payout to the Mexican government.
• The SPV invested the proceeds in US Treasury money market funds and maintained a collateral account.
• A separate event payment account was established to facilitate direct payments to FONDEN from the SPV.

Outcome

• The bond was oversubscribed, showing strong investor interest in non-peak risk instruments.
• Mexico successfully transferred a pool of disaster risk to the capital markets, secured multi-year protection at a fixed price, and reduced potential pressure on public budgets.
• The transaction demonstrated the feasibility of using capital markets for disaster risk financing, encouraging other emerging market countries to adopt similar strategies.
• It helped stabilize government budgets and avoid the need for excessive budget reserves.

Lessons Learned

1. A strong legal and institutional framework is essential for implementing effective risk transfer mechanisms.
2. Replication of the Mexico model is possible for other middle-income countries.
3. Data and risk modeling are critical for new countries entering the catastrophe bond market.
4. The World Bank's role as arranger significantly enhances investor confidence and comfort.

Summary of Terms: Mexico MultiCat 2012

Contact

• Issam Abousleiman - Head of Banking Products, The World Bank, iabousleiman@worldbank.org
• Ivan Zelenko - Head of Structured Products and Derivatives, The World Bank, izelenko@worldbank.org
• Olivier Mahul - Program Manager, Disaster Risk Financing & Insurance, FCMNB and GFDRR, The World Bank, omahul@worldbank.org
• Hannah Yi - Policy Analyst, Disaster Risk Financing & Insurance, FCMNB and GFDRR, The World Bank, hyi@worldbank.org

Additional Information

• The MultiCat Program is a tool developed by the World Bank to support sovereign and sub-sovereign entities in pooling disaster risks.
• The GFDRR (Global Facility for Disaster Reduction and Recovery) plays a significant role in supporting disaster risk management initiatives in developing countries.
• The document was updated in February 2013.